In a new year abounding with investment peril, the "little guy" just might save the day.
America's small companies are positioned to outperform their larger brethren and provide much-needed adrenaline to an economy that's probably on course for a downturn.
Small businesses represent more than 99.7% of all U.S. employers, employ half of all private sector workers, and account for 60% to 80% of the new jobs created annually in the country.
And the share prices of small-capitalization companies have been soaring.
Since Donald Trump's stunning upset on Nov. 8, the Russell 2000 index of small-cap stocks has jumped 10.14%; the index has gained 19.48% for full-year 2016. That's an impressive performance, compared with the gains of 3.39% and 9.54%, respectively, for the S&P 500 (SPY) .
Every portfolio should have exposure to small caps; now's a good time to start while they're displaying long-term momentum.
The term "small cap" is fungible, but it's typically defined as a market valuation of between $300 million and $2 billion. These companies form the backbone of the country's entrepreneurial innovation.
Many analysts contend that the bull market is overdue for a correction and the Obama recovery is on course for a recession. However, several tailwinds position small stocks not only as safer growth bets for investors but also as possible saviors of the overall economy.
Let's start with Donald Trump's policies, which are of surprising benefit for smaller companies.
Profitable firms in the Russell 2000 tend to pay higher taxes than global behemoths. The big boys are adept at lowering their rates through expensive lobbyists and accountants; they also avoid taxes by squirreling their profits overseas.